Posted on 09 June 2014 with 1 comment from readers
Former head of commodities at the Abu Dhabi Investment Authority and GoldMoney.com founder James Turk and John Rubino are well known figures in the gold industry. They’ve just published a new book, ‘The Money Bubble’. It argues that the price of gold is about to soar to $10-12,000 an ounce.
In a nutshell the authors contend that the major paper currencies of the world actually now have less gold backing them than previously thought. An analysis by the Gold Anti-Trust Action Committee concluded that nearly half the world’s gold reserves of 29,000 tonnes have been dumped on the open market through central bank leasing or lending as they term it.
$10-12,000 an ounce
You can calculate what the price of gold needs to be to restore gold backing to paper currencies to solve a crisis of confidence in several different ways. This is where the future price of $10,000 to $12,000 per ounce is derived.
Trading is only just 20% of what strategy you use. 80% of trading is all about managing money.
Money management like this is about assessing the risk. So this makes risk and its forms essential to understand. Risk means the probability of losing money. When you trade in the market you are exposing your money to risks
The formulas given in the book are a bit complex but the price implications are easy enough to follow.
The authors blame the ‘gold price smackdown’ of last April on a desperate action to ‘avoid a default in which a counterparty failed to deliver physical metal when obliged to do so’ and a ‘pre-emptive strike’ by the bullion banks and central banks which have colluded for years to suppress the gold price to mislead markets on the true rate of inflation.
Last April the manipulators won and the gold price fell 28 per cent in its worst year for 13 years. Messrs. Turk and Rubino describe how bullion banks led by Goldman Sachs recommended shorting gold in early April. Then a handful of major banks sold enough futures contracts to take down the price below key support levels and selling compounded driving the price down nine per cent in one trading session.
The Financial Times quoted a prominent trader as saying: ‘These moves are becoming more prevalent, and to my mind have to be the work of somebody attempting to manipulate the market or someone who really shouldn’t be trusted with the sums of money they are throwing around.’
A final blow to the gold price was struck by the Indian central bank ‘which decided, supposedly to reduce the country’s trade deficit, to impose strict limits on gold imports’. But this game is about to end in the opinion of this new book’s authors.
Short squeeze coming
‘In reality the great gold takedown of 2013 backfired so disastrously that not only is a repeat less likely, but its opposite, a short squeeze or counterparty default that sends the price dramatically higher has not become just possible but probable in the next few years.’ Why is that?
First, gold is migrating from West to East as China and Russia voraciously convert their dollar reserves into gold and vaults are being emptied. Secondly, gold ‘backwardation’ when the current price is higher than the future price has twice previously indicated a price hike to come in 1999 and 2008. Thirdly as demonstrated above price manipulation is about to breakdown.
Then all it takes is for the pension funds of the world to discover gold and the price is off to the levels James Turk and John Rubino expect. This book is a sensational piece of analysis but its conclusions are not nearly as sensational as they appear at first sight. Gold prices at these levels will also mean $500 an ounce silver (click here).